Is the Northern Rock sale a good deal for taxpayers?

The government is to sell Northern Rock plc to Virgin for £747m, re-privatising the bank at a loss of at least £400m. Is it a good deal for the taxpayer?
Polly Curtis, with your help, finds out. Get in touch below the line, email your views to
polly.curtis@guardian.co.uk or tweet
@pollycurtis

The chancellor has announced a deal for Virgin Money to buy Northern Rock plc for £747m with the possibility of up to £250m more in the near future. We as taxpayers have put £1.4bn into the bank, meaning we stand to lose between £400m and £653m. My colleague Andrew Sparrow has written a very straightforward guide to the deal here, Graeme Wearden's report is here and you can read the press release here. George Osborne (left), the chancellor, said:

The sale of Northern Rock to Virgin Money is an important first step in getting the British taxpayer out of the business of owning banks. It represents value for money; will increase choice on the high street for customers; and safeguards jobs in the north east.

Is this a good deal for taxpayers?

My colleague Jill Treanor, the Guardian's City editor, points out that Northern Rock was split into two after it was nationalised: Northern Rock plc is known as "good" Northern Rock, while the "bad" bit consisting of the dodgy loans and 125% mortgages was merged with mortgages from the failing Bradford and Bingley to create a new bank with £28bn worth of government loans. That loan would be returned over 40 years as people pay off their mortgages. Today's sale is of "good" Northern Rock, not the bad bit. Jill writes:

The bad bit of the Rock still exists and has been merged with the nationalised mortgage book of Bradford and Bingley to create something called UK Asset Resolution (Ukar). Essentially it is in run off so the loans and guarantees from taxpayers get slowly paid off as people pay off their mortgages. The last mortgage payments are technically due post-2040, which means taxpayers could be stuck with that burden for sometime. However, technically someone could buy the "bad" bank - Ukar - if they reckoned they could make some money out of it. Ukar has also had aspirations to turn itself into a processing-type company for other lenders. For now, though, it is one giant loan collector that appears to be wedded to the taxpayer for years. Splitting up the Rock was a clever move by Labour to make it look as it was able to begin recouping money and get more competition going on the high street.

So the government has sold-off the "good" part of Northern Rock at a loss of at least £400m while keeping the "bad" bits in Ukar. According to the most recent National Audit Office accounts we as taxpayers are currently owed £21.59bn by the Northern Rock (asset management) element of Ukar and are exposed to another £19.5bn. You can see those accounts here.

Will we get our loans back from Ukar - "bad" Northern Rock?

The NAO has been keeping a very close eye on this in a series of reports, but it still doesn't know. Amyas Morse, the head of the NAO, concluded in a report from last March:

It is good for the taxpayer that the debt-holders have now shared part of the costs of restructuring the banks. It remains to be seen if the cost of subsidising the banks will eventually be recouped by the taxpayer.

That report also concluded that:

The Treasury predicted when nationalising Northern Rock that it would cost taxpayers a net present value of £1.3bn. It has not updated this calculation since.

Today's sale represents a loss of at least £400m so it would seem those figures from the Treasury are in dire need of updating, including the "bad" Northern Rock exposure.

The NAO has also published a very good Q&A on the nationalisation of the banks here which includes the question: will we get out money back? This is their answer:

It is likely that a substantial proportion of these schemes and investments will be with us for some time and the eventual profit or loss to the taxpayer will not be known until all the support is removed, the loans repaid and the shares sold.

In other words, they don't know.

Was it worth it?

On Twitter @MayorWatch points out that you have to take into account what the cost of the collapse of Northern Rock would have been to properly assess the value for money taxpayers have had. A series of tweets to me said:

What you also need to consider are the wider & more difficult to calculate costs if NR had gone bust...

including the devastation to the northern economy from a sudden surge of joblessness...

There may well be a loss but it's not calculated as simply as deducting purchase price from sale price...

What would paying jobseekers & HB have cost if it'd collapsed and staff were jobless? What would impact be on local shops?

Essentially, the £1.4bn cost of keeping "good" Northern Rock plc running allowed the branches to stay open, people to remain employed and the brand to survive and was a political decision. We now know from today's announcement of the sale that that political decision came with a price tag of between £400m and £653m. Was it worth it?

I'm going to gather views on this and update this blog shortly. What do you think? Do you know of any evidence to test the value-for-money of the bail-out of Northern Rock? Polly Curtis, with your help, finds out. Get in touch below the line, email me polly.curtis@guardian.co.uk or tweet @pollycurtis

To kick things off, a tweet from Robert Peston, the BBC's business editor:

The sale of Northern Rock is sensible if you believe a) it will be managed better in private sector; b) it will stimulate competition

11.52am: Labour is treading a careful line on this. The shadow chancellor Ed Balls is defending the decision made by the last Labour government, of which he was part, to bail out Northern Rock and supporting the bank's return to the private sector, as was always planned. His one line of attack is to suggest that now may not have been the best time to sell it off, considering that the market is weak and it may not have been the best price. He told the Victoria Derbyshire programme on BBC Radio 5 Live:

There is a question as to why this was the best time to do this. If he had waited until the markets were slightly less unstable - bank shares are very low at the moment - would that have led to a better return? I'm not saying it's right or wrong - I just want to look at that question, but clearly there is a loss for the taxpayer.

I tweeted earlier asking what Labour people think of the sell-off and received several responses suggesting people think it's a missed opportunity to mutualise the business. Steve Jary of the Prospect union tweeted back:

This is a lost opportunity to create a new People's Bank, renewing NR as a mutual.

The Co-operative Party general secretary Michael Stephenson, unsurprisingly, has called it a bad deal for this reason, saying:

George Osborne has missed a real opportunity to return the Rock as a new mutual, which would have signalled the Government had learnt crucial lessons from the banking crisis. The sale to Virgin is a resurrection of the failed former model. This fire-sale demonstrates he is not willing to think long term about how banks can serve their customers and reduce risk for taxpayers.

Paul Waugh, editor of politics home, has a good analysis of why the option of mutualisation - championed in other areas of government - wasn't taken here.

12.08pm: This is interesting. @harrygjackson and @Scunner666 both point out on Twitter that the "bad" Northern Rock, the bit we still own, is actually in profit, while "good" Northern Rock is not expected to return to profit until next year. @harrygjackson usefully provided the links for the last six month accounts for the bad bank, Ukar, here and the good bank, Northern Rock plc, here.

2.29pm: Readers have pointed out, and my colleague Nils Pratley writes here, that Northern Rock plc has already lost nearly £300m. Its last accounts show it to be worth £1.12bn rather than the £1.4bn the government has put in so the decision announced today to sell it to Virgin Money represents a smaller loss in itself.

More people are starting to question its wisdom. Mark Field, the Tory MP for the Cities of London and Westminster, told BBC Radio 4's World at One:

I'm very concerned about whether we are getting really good value for the taxpayer There has to be a sense that Richard Branson has got the deal he was craving four years ago for a song today. When one looks at the track record of Mr Branson he tends to make pretty good deals and I suspect he knows this is reasonably good.

Virgin first attempted to buy Northern Rock before it was nationalised. When the negotiations with Virgin fell through in 2008 and the government decided to nationalise, the then chancellor Alastair Darling said:

At the end of the day the biggest issue is the safeguarding of taxpayers' money. If nationalisation saves that money, that has to be the correct step in the long term... I would have been quite wrong to do this last September. It was right to allow the board of the bank and the shareholders time to see if a private sector solution could be found. It was absolutely right to explore all the possibilities.

If Virgin had secured the deal then it would have been a very different deal to today's because it was prior to the split of the bank and it would have taken on the "bad" debts of Northern Rock as well. One Labour source just told me they did everything they could to avoid nationalisation in 2008, but the feeling at the time was that the deal Virgin was offering was not good enough for the taxpayer. At the time the government complained that the amount being offered by Virgin, and the share the public would get back, was too small and would lead to accusations of unfair profiteering.

I'm not sure how you would begin to measure the hypothetical cost/benefits of a sale back then compared with now. I've just been reading this very interesting interview with Jayne-Anne Gadhia, the head of Virgin Money, from May this year. She tells my colleague Jill Treanor that her motto is "never give up" and talks about wanting to buy Northern Rock so that the Virgin Money brand is "plastered all over the highstreet.